The Panama Papers expose wealthy weasels’ tax-dodging secrets

NEWS by Paul Dechene


The release of the Panama Papers has doubtless kept many a public relations pro and communications flunky busy over the last few weeks. Considering the storm of 11.5 million documents — that’s 2.6 terabytes of data — from Panamanian law firm and corporate services provider Mossack Fonseca details the offshore holdings and tax havens of presidents, prime ministers, government officials, business magnates and movie stars, you can bet that a mountain of press releases and media strategies were generated in short order to stave off scandal.

And what a scandal. While there are legitimate reasons to set up offshore accounts, the kinds of corporate structures that Mossack Fonseca specialized in are frequently used to hide income so that it isn’t taxed.

As one leaked Mossack Fonseca memo admits: “Ninety-five per cent of our work coincidentally consists in selling vehicles to avoid taxes.”

While the wealthy worry about new scrutiny over their offshore holdings, answering questions about what all this means has become an extra full-time job for Dennis Howlett, executive director for Canadians for Tax Fairness (C4TF). Howlett’s organization advocates for fair, progressive taxation.

He says that in the week the story broke he answered 511 media calls.

He had some blunt words in response to the claims that the Panama Papers are a tempest in a teacup, and that Mossack Fonseca’s clients were solely using legal offshore financial instruments for perfectly legitimate reasons.

“I expect 90 per cent of individuals listed are guilty of tax evasion, illegal activity,” says Howlett. “But we have no way of knowing which ones. However, tax authorities will be [able to]. If they get a hold of all these things, they’ll be able to quickly check, ‘Okay did this person report their offshore accounts on their tax returns? If not, then they’ve done something illegal.’ And I’m hoping they’ll get on them.”

Howlett says Mossack Fonseca didn’t just set up bank accounts that made international travel easy, but rather they dealt in the kinds of accounts that concealed the identity of the person who owned it — such as numbered accounts or shell corporations.

“Even if you have an offshore account like that, you have to report and you have pay tax. Canadian residents have to report and pay taxes on any investment income that those offshore companies gain,” he says.

Howlett says that there hasn’t been much to deter people from setting up these dodgy tax havens.

The Canadian government, he says, has a poor record on prosecuting anyone implicated in any of the many previous document leaks about tax shelters.

In 2013 there was the Offshore Leaks of 2.5 million documents. In 2014, the Luxembourg Leaks involved 28,000 pages of documents, and in 2015 there was the Swiss Leaks affair involving 3.3GB of data. Financial institutions such as HSBC and PricewaterhouseCoopers have been caught setting up tax shelters for countless wealthy individuals.

And yet, here at home, our solution has generally been to offer amnesties to tax dodgers.

Howlett points to understaffing at the Canadian Revenue Agency as one reason we’ve been so soft.

“They’ve been so understaffed they’ve relied mainly on voluntary compliance even when, technically, when a list gets exposed it’s really supposed to be too late to come forward voluntarily and try to settle. Under the voluntary compliance you just pay taxes plus interest. You avoid any penalties.

“The CRA claims they’ve collected a bunch of money as a result of these previous leaks. But nobody has been thrown in jail as a result.”

And while much of the CRA’s staffing problems can be attributed to funding cuts, the agency has also watched as many senior staffers have switched sides in the fight against tax evasion.

On April 12, the CBC reported that high-powered accounting firms have been recruiting CRA tax enforcement investigators. In other words, the people who are supposed to be holding wealthy tax dodgers’ feet to the fire are being lured away to work for the very same firms mentioned in leaks about offshore tax havens.

According to CBC’s report, the country’s four largest accounting firms — KPMG, PricewaterhouseCoopers, Ernst & Young and Deloitte — have hired over 50 CRA tax officials in the last 15 years. In one glaring example, an executive in CRA’s tax compliance division, Jeff Sadrian, went to work for KPMG as an advisor on “tax litigation and dispute resolution” at the same time as the CRA was taking KPMG to court for setting up offshore tax havens.

To deal with these problems, the federal government dedicated $444 million over five years to beefing up the CRA to crack down on offshore tax havens. Revenue Minister Diane Lebouthillier says we can hope to recover $2.6 billion over that time. Not a bad return on investment.

But when you consider the Toronto Star cites estimates that Canada is losing between $6 billion and $7.8 billion annually to tax havens, there’s still a long way to go.

Of course, a line that’s emerged in some of the true-blue conservative corners of the pundit-o-sphere is that going after tax havens is a bad idea — that we’re a more competitive country in the global economy precisely because we’re soft on wealthy people who hide their income offshore.

Howlett doesn’t accept that.

“That’s been the line the Conservatives used, and so they turned a blind eye to corporate tax evasion because that would make us more competitive,” says Howlett. “But that is crap because Canadian corporate taxes have been reduced so low that they’re certainly one of the lowest in the OECD. There’s no reason for them to have to compete on that basis. And what it does create is a huge uneven playing field between other businesses — medium, smaller-sized businesses that don’t have a global reach — and it’s totally unfair to them.”

Howlett concludes that we aren’t making ourselves any more competitive by depriving the government of funds.

“There are different things you need to compete that are more important than the tax rate,” says Howlett. “There’s whether there is quality education for workers, whether there’s good infrastructure, whether there’s a well-functioning court system and health system.

“All those things are way more important than a point or two on taxes,” he says.

The Regina Connection

There was even a Saskatchewan name to pop up in the list of Canadians implicated in the Panama Papers leak: Regina lawyer Tony Merchant, husband of Liberal senator Pana Merchant. Funny thing, this isn’t the first time Merchant’s name has been attached to a news story about offshore tax havens. In April 2013, Merchant was one of the people listed in the Offshore Leaks report put out by the International Consortium of Investigative Journalists. It was based on a cache of 2.5 million documents. It’s worth noting again that there are legitimate reasons to use offshore accounts so none of this is to suggest local lawyer Tony Merchant is guilty of any wrongdoing. Rather, it’s to say, Hey look! A local boy made the international news! Twice! /Paul Dechene